OPINION> EDITORIALS
Creative destruction
(China Daily)
Updated: 2009-06-04 08:08

A Chinese company's surprising purchase of the Hummer brand will surely make the bankruptcy of General Motors Corp an even hotter and more relevant topic in this country.

Domestic users may continue worrying about disruption in after-sales service even though GM insisted that its operations in China would not be affected. And, Chinese carmakers are keen to re-examine the domestic market for challenges and opportunities arising from the fall of this global auto giant.

However, for Chinese policymakers, the more important thing is to read it as a case of creative destruction. After filing for bankruptcy on Monday, the CEO of GM claimed that today marked the beginning of a new GM dedicated to building the very best cars and trucks. While that kind of optimism may be far-fetched, the bankruptcy of an American corporate icon like GM, in itself, can actually mark the end of one chapter of the global recession.

Various huge financial bubbles have been blamed as the main culprit for the current economic crisis, the worst in many decades. But the demise of some financial institutions and the government-led bailouts of some others have not stopped the global downturn; and, even central bankers have applied "quantitative easing". That implies some fundamental problems at the heart of the real economy.

Creative destruction

Now, the US government has made an inescapable hard choice. By reorganizing one of its biggest companies that was once deemed as too big to fail, the US has taken a key step forward in rebuilding its economy. Among other factors, inflated pensions and health-care benefits as well as low fuel efficiency are to blame for the downfall of GM.

Problems like high production cost and low environmental standards are typical in GM but not limited to Detroit. GM's bankruptcy shows that the US government has not only recognized but also acted to fix such root causes that have long sapped the productivity and competitiveness of the US economy.

This is a difficult decision. US taxpayers will raise tough questions about the new company's viability. GM's employees will suffer from a painful decline in income level when the economic crisis has already made life hard.

But the need to raise overall economic efficiency should prevail over the difficulties in dismantling the inefficient. That message has been driven home to all US companies. That is good news as the world seeks a more balanced and sustainable recovery.

While pressing ahead with domestic industrial restructuring, Chinese policymakers also need to allow creative destruction to play a bigger role in raising the efficiency of the economy.

(China Daily 06/04/2009 page8)